What changes are undergoing the European insurance companies?

In many ways, 2022 may not be all that different to 2021. The pandemic will no doubt continue to create jitters in markets, whereas higher inflation – while still perceived by some as transitory, (though over a lengthening horizon) is likely to continue to have a major impact on European economies.

Efforts to wring every last basis point out of investments are also likely to remain a feature across EMEA in 2022, irrespective of any tentative moves upwards in interest rates. Though the virulence of Omicron has proven to be weaker than first feared, COVID 19 is far from over and insurers will need to be prepared for other variants that could once again disrupt supply chains, prices and investment markets.

ESG has been an increasingly impactful force over the past few years, intensifying most recently around COP26 and the Net Zero pledges and commitments from governments and financial services companies, including many insurers. As ESG moves further into the foreground, we anticipate much greater intensity of dialogue between insurers and their asset managers around impact investing strategies, mandate restrictions, reporting and efforts to de-carbonise portfolios to meet Net Zero commitments. Until recently, insurers seemed happy to rely on their asset management partners to fulfil their ESG goals for them. That dynamic will continue to shift in 2022 as insurers and the trillions of assets they manage, look to embed the commitments made last year.

We are now over half a decade on from the introduction of Solvency II. We have started to see considerable and refreshing changes in the way that insurers invest and the asset classes they are prepared to consider. These are different days from just prior to the introduction of Solvency II when insurers drew in their investing horns and took significant risks out of their portfolios. As familiarity with the regulation has increased, so too has insurer investor confidence and sophistication.

This isn’t restricted to private debt, appetite for which remains high in spite of nail-biting over what the PRA’s review of Matching Adjustment rules might bring. We are regularly having conversations with insurers about private equity, venture capital, complex social projects and an ever more esoteric suite of asset classes, making the old adage of Solvency II – bonds good; everything else bad – feel like an increasingly distant memory for insurance asset management.